Sleepwalking Toward a Precipice, Part III

[giofranchi]

For anyone who might be interested.

 

giofranchi

Sleepwalking_toward_a_precipice_partIII.pdf

[matjone]

Thanks for posting.

 

He is  saying that investing for the long run may not work for the next few years because  p/e ratios might go down and the earnings might not go up much because of low growth.  He could turn out to be right, but can anyone actually predict these things?  I guess some really smart people might be able to look at fundamentals and forecast economic growth, and I am  skeptical of that, but what I  am even more skeptical of is his reasoning for forecasting pe compression, which is  that since bear markets in the past lasted 17 years and ended with a pe of 10, and this one started in 2000 and we are at a pe of 16 now, then pe's are going to be about 40% lower in 2017.

 

Even if he does turn out to be right, I think good value investors are  going to do ok.  Obviously they do better when earnings are growing and multiples are going up.  But if they are really good they may find  companies where one or both of those conditions are still true, even if they aren't for the overall market.

[giofranchi]

Even if he does turn out to be right, I think good value investors are  going to do ok.  Obviously they do better when earnings are growing and multiples are going up.  But if they are really good they may find  companies where one or both of those conditions are still true, even if they aren't for the overall market.

 

Couldn't agree with you more!

 

Anyway, I think that some recommendations of his could be useful also to good value investors. For instance, event-driven strategies are used by Mr. Loeb, who is undoubtedly a good value investor, and were also used in the past by Mr. Buffett; long/short strategies are used by both Mr. Watsa (hedging out market risk) and Mr. Einhorn, who are undoubtedly good value investors; and distressed debt strategies are used by both Mr. Marks and Mr. Klarman, who are undoubtedly good value investors.

 

giofranchi

[LongTerm]

Thanks for posting. I'm very much in this camp right now. I see alot of investor complacency; a low VIX reading in the US and fully/overvalued equity and fixed income markets. I can hardly even find a 'special situation' that is priced with an appropriate return. The markets seem to be just begging for some type of dislocation.

 

Yet the macro situation is at best daunting. The only way out for an over-indebeted world is either accept the slow grind of deleveraging or debt repudiation and all the political turnmoil that accompanies it. It really does look to me like we're "sleepwalking toward a precipice".